Judge approves PHL Variable plan; could reduce benefits by up to $4.1B

Image shows the Connecticut Department of Insurance website — A judge approved a moratorium sought by Connecticut regulators for the troubled PHL Variable.

By John Hilton

A Connecticut judge signed off Tuesday on changes to a moratorium on benefits available to the financially troubled PHL Variable Insurance Co. – changes that could reduce universal life death benefits owed by up to $4.1 billion.

Judge Daniel J. Klau acknowledged the difficult situation facing the Connecticut insurance commissioner, who is acting as the designated rehabilitator overseeing PHL Variable. Andrew Mais had fulfilled that role since PHL was placed into rehabilitation in May 2024 due to a hazardous financial condition.

But Mais retired on Nov. 28 and Gov. Ned Lamont named Josh Hershman as interim commissioner. Hershman will take office Dec. 12, a spokesman for CID said.

The moratorium “strikes a balance by giving all policyholders access to cash distributions up to the amount that they would be guaranteed to receive in any liquidation, while also preserving PHL estate assets so that a rehabilitations can be pursued primarily for the benefit of policyholders,” Klau wrote, accepting the arguments of the rehabilitator.

More options for PHL policyholders

The rehabilitator previously explained how policyholders can access more of their benefits. Universal life policyholders have two options under the moratorium modification:

Reduction in the face amount of death benefits with downward premium adjustment prospectively.

Convert policy to a claim for a fixed amount (to be determined based on adjusted surrender value) with no ongoing premium obligation.

The modification is expected to offer fixed indexed annuity owners who have not activated their income rider or are currently receiving systematic withdrawals two alternatives:

Activate the income rider (to the extent available under the contract).

Receive a one-time surrender-charge free distribution of the “Free Withdrawal Amount” under the contract (typically this is approximately 10% of the contract’s account value).

Depending on how policyholders decide on the UL options, the results could cost PHL between $165 million and $175 million in premiums not paid, court documents say. However, if all UL policyholders take one of the two options there would be no immediate cash outlay from PHL and death benefits owed would be reduced by up to $4.1 billion.

“This would materially improve the solvency of the PHL estate,” the rehabilitator told the judge.

The cost of the FIA moratorium options is between $39 million to $52.3 million, court documents say.

'Adversely impacted'

Klau rejected the objections from large policyholders who say the moratorium changes unfairly penalize them. SWS Holdings owns two Phoenix Generations UL Flexible Premium Adjustable Life Insurance policies worth $18 million in death benefits.

In its motion to intervene in the rehabilitation proceedings, SWS said they have been "adversely impacted" by the rehabilitator's decision to cap policyholder death benefits or policy maturity benefits at $300,000.

That decision had the effect of dividing the PHL policyholders into two camps, SWS claimed: "under the cap" policyholders who will receive payment in full under their policies, and the "over the cap" policyholders, who "will receive less than what they bargained for when they purchased their PHL insurance policies."

Judge Klau said the time has passed for those objections, which don’t relate to the moratorium changes, he wrote.

The troubled PHL and its subsidiaries, Concord Re and Palisado Re, were put in Mais’s control after a May 20, 2024 court order. PHL issued life insurance and annuity products and related supplemental contracts to policyholders nationwide. Concord and Palisado are captive insurers whose only business is the reinsurance of PHL’s liabilities.

Several companies are competing to take over or reinsure all or parts of the PHL Variable business, and the Connecticut regulators say they will decide which proposal to pursue by the end of December.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.